• A new focus on Kowloon East pushed office rents there higher while Greater Central remains the world’s costliest CBD

    19 July 2018

    (11 July 2018, Hong Kong) – Greater Central’s Grade A office rents breaking a new record and  substantial absorption in Kowloon East were the highlights in Q2 2018, as noted by Cushman & Wakefield, a global leader in commercial real estate services. Meanwhile, buoyed by increased retail sales and increased tourist volumes, the improved sentiment of the retail market led to a stable rental performance across the board except for Central.

    At 521,600 sq ft, the territory-wide net absorption surpassed half-million sq ft for the third consecutive quarter, reflecting an active market which supported increasing rents in all submarkets. With the average monthly rent reaching HK$137 per sq ft, Greater Central remains the world’s costliest CBD, about 1.5 times rents in West End of London. Greater Tsimshatsui led the pack in quarterly rental growth (up 3.2% q-o-q) against rental increases at K11 Atelier and The Gateway where the occupancy rate at the buildings stood above 90% as of end of Q2. Kowloon East had an interesting combination of having the highest availability (14.1%) and the highest level of absorption (532,900 sq ft) among all submarkets. This is in large part due to a new focus on high quality new projects from MNCs such as DBS Bank and VF who have leased 134,000 sq ft and 69,400 sq ft in Two Harbour Square and Mapletree Bay Point, respectively, for consolidation and cost saving purposes. In fact, 67% of the 3.1 million sq ft of new supply in Kowloon East between 2017 and 2019 has been leased. The strong take-up helped push rents in Kowloon East up 1.2% q-o-q to HK$36 per sq ft per month.

    Mr John Siu, Cushman & Wakefield’s Managing Director, Hong Kong, said, “Availability is tight especially on Hong Kong Island, which limited leasing activity in Greater Central especially where PRC companies are concerned. The global-top rents of Greater Central continue to drive companies to non-core areas such as Hong Kong East and we expect the decentralization trend to continue over the next few quarters.”

    Demand for Grade A office space from co-working operators remained strong, with Kr Space leasing 72,500 sq ft in One Hennessy, an upcoming Grade A development in Wanchai, and naked Hub leasing 75,400 sq ft in The Quayside in Kwun Tong. Mr Keith Hemshall, Cushman & Wakefield’s Executive Director, Head of Office Services, Hong Kong, commented, “The entrance of more PRC co-working operators, who contributed to 87% of all Grade A office space leased by co-working players (254,000 sq ft) over the first six months of this year, intensifies the competition for market share in the city. Some leading operators are now targeting not only start-ups but also corporate occupiers in their premises to secure higher and more stable revenue income. As a result, we anticipate that more leasing transactions by co-working operators in core Grade A offices will be recorded in the coming months.”

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    The continuous growth in retail sales in Q2 was underpinned by the jewelry & watches sector, which witnessed 22.3% y-o-y growth from January to May in the largest increase since 2016. A rebound in PRC tourist volumes – up by 12.7% y-o-y from January to May which is the biggest y-o-y growth since 2014 – and a positive market sentiment contributed to stable rental growth in most core retail submarkets. Causeway Bay and Tsimshatsui edged up by less than 0.5% q-o-q. Mongkok recorded quarterly growth of 2.4%, while Central suffered from a quarterly drop of 1.4%.

    Vacancy shrank by a larger margin of 1.2% and 9.4%, respectively, in Tsimshatsui and Mongkok, and remained unchanged in Central, while a seasonal release in shopfront space in Causeway Bay caused an increase in vacancy to 2.6% in Q2. Demand was especially strong from the multi-brand cosmetics/ personal care and athleisure sectors in core locations thanks to good business performance. The F&B sector also recorded continuous growth in business, but F&B rentals in the core retail areas still declined in the range of 0.6-1.4% in Q2. The shortage of labor and resulting higher labor costs remained a hindrance to expansion, especially for individual operators.

    Mr Kevin Lam, Cushman & Wakefield’s Executive Director, Head of Retail Services, Hong Kong, said, “Athleisure is still a sector to watch, but the multi-brand cosmetics/personal care sector is even more promising, noted by several cases of expansion in Q2, with new international brands coming into the Hong Kong market as well. We expect more transactions from this sector in H2 2018, which should boost rents by 1%- 3% in H2 in Causeway Bay and Tsimshatsui, except for Central which will remain in a downtrend.”

    In the photo: Mr Kevin Lam, Cushman & Wakefield’s Executive Director, Head of Retail Services, Hong Kong (left), Mr John Siu, Cushman & Wakefield’s Managing Director, Hong Kong (middle) and Mr Keith Hemshall, Cushman & Wakefield’s Executive Director, Head of Office Services, Hong Kong (right)

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